COP-15 Risks: Moving The Goal Posts Too Far

At the April G20 London summit, G20 leaders made a strong show of common purpose and conviction in the urgency of fighting climate change. Their common aim was to move the economy "Towards a Global Green Recovery", as the summit was by-lined by proactive climate change mitigation interest groups.

Since then, "global green" is the focus of follow-ons and detailed wishlists for global energy transition. Details of this quest at government level, however, were always shadowy and evasive. The exact mix of massive Keynesian-type bailouts for the bank, finance and insurance sector, versus state-backed investment and legislative support for "green energy" was and remains unclear.

Today, as shown by oil, natural gas and other commodity prices, the apparent global recovery is more than somewhat dark fossil fuel colored.

The December Copenhagen 'climate summit', called COP-15, was set as the forum at which all would be revealed. At COP-15, world leaders would come together to fight climate change and move the world to clean energy. At COP-15, they would make concrete and binding commitments, set new legislation and unlock the purse strings of Big Government loans, preferential tariffs, carbon taxes, green energy grants and other spending for this epochal task.

Not only real world realpolitik, but also energy-economic facts and figures militate against this fantasy-type COP-15 Happy Ending for climate change mitigation.

Political leaderships in the two giant emerging economies, China and India, face a long list of domestic economic and political issues, some of them related to the 2008-2009 financial crisis originating in the US and Europe, but few of them related to climate change.

While exposed to the same, usually exaggerated longer-term probable economic damage caused by climate change as the OECD countries, their ability to change their energy systems and energy economies "on a dime" is surely even lower than for the OECD group.

Getting There From Here

The very simplest, most basic energy-economic facts underline the true and epochal dimensions of the Green Energy quest, that OECD leaders including Barack Obama have no qualms proclaiming: for example a cut of 80 percent in CO2 emissions (but perhaps not in fossil energy consumption!) for the USA by 2050, from a 2005 base, or thereabouts.

The goalposts are often shifted round, but few or no OECD leaders use a 1990 base for their emission cut targets - underlining that the Kyoto Treaty, which uses that datum, is moribund if not dead.

To be sure, for the COP-15 summit, one proposal originating in the OECD-dominated UN IPCC but targeting the emerging economies, led by China and India, would set a binding agreement for cuts as high as 40 percent in world CO2 emissions by 2020 with a 1990 reference base.

This 40 percent cut in CO2 emissions would be applied in all countries, and imply extreme-massive spending and investment on a ten-year timetable, in alternate and renewable energy and energy saving.

The feasibility of this implied program, even if financed by printing money in true Keynesian style, would be severely hindered by industrial and technology constraints. While near-to impossible in the OECD economies, it would be truly and totally impossible in China and India.

Without saying it out loud, and taking care to not link the targeted CO2 emissions cuts with fossil energy demand compression, these massive targeted cuts can only imply very similar cuts in oil, natural gas and coal burning. In other words, cuts of around 80 percent by 2050, and 20 percent to 30 percent by 2020 or 2025, using a reference datum of around 2005.

Annual fossil energy demand cuts can easily be calculated, and work out to at least 2.5 million barrels a day of oil equivalent (Mbdoe), each year for the OECD group, starting very soon.

Providing an idea of what this would mean, current total oil consumption of South Korea and Germany runs at around 2.5 - 2.8 million barrels a day (Mbd), each. Total OECD oil demand is around 45 Mbd in 2009, down about 2.5 Mbd since 2007.

Cutting some of this demand by energy saving, and substituting a large amount of it by alternate and renewable energy, to achieve 2.5 Mdboe moved away from fossil energy every year would likely cost at least $ 750 billion a year. This is 50 percent above even the most optimistic spending forecasts for "green economy transition", including at least one-quarter taken by emissions trading and derivatives, advanced at the Davos Forum, 2009.

Current global commercial energy consumption, which excludes much of the biomass energy burned in low income countries, and own consumption, and energy losses in the global energy industry runs at about 150 - 160 Mbdoe.

The exact equivalence, the amount of oil, gas and coal used as raw materials (notably for plastics and agrochemicals, cement, road building materials, etc), the end uses and conversion efficiency, all modify the read-out for needed cuts and substitution, but we can place the current global economy's fossil energy dependence at around 155 Mbdoe, as a relatively exact ballpark figure.

More than 40 percent of this comes from oil, despite at least 7 or 8 Mbd of oil going to petrochemicals and plastics. Coal is right behind, and gas quite close after coal.

Substituting and economizing around 130 Mbdoe by 2050, or at least 25 Mbdoe for the OECD group within 12 years or so (by 2022) are truly heroic, even fantastic goals. The current demand and consumption data are simple facts.

The proclaimed-as-feasible target energy demand cuts by energy saving, and fossil energy replacement by alternate and renewable energy, are political and public opinion hopes, able to be quietly forgotten when their vast implications are better understood.

Also, as we are likely to witness at COP-15, these heroic energy transition targets, and the legislative forcing suggested to achieve it, are an incitation to conflict between the OECD group and the emerging economies. Adding huge amounts to already rising world oil and gas energy spending, energy sector investment needs would spiral, with inevitable impacts on energy prices.

Not Together

When it concerns fossil energy, and CO2 emissions from fossil fuel burning (ignoring the more than 33 percent of greenhouse gas emissions that arise from other sources), the approximate 1 billion persons in the OECD countries have considerable problems arguing that emerging economies have to share the burden and move together, with the same timelines and targets as the OECD.

The now well-known "per capita argument" has returned as conflict starts to brew before COP-15, menacing its credibility and chance of success.

China's Hu Jintao said last month that his country will only cut emissions in proportion to economic growth, without giving specific goals, or saying if he would include these proposed cuts as an engagement in a global agreement.

India will keep its per-capita emissions lower than that of the rich nations, as PM Singh has reiterated many times, going on to say in the run up to COP 15: "Equating greenhouse-gas emissions across nations on a per-capita basis is the only just and fair basis for a long-term global arrangement on climate change".

India uses an average around 1.3 barrels of oil per capita each year, if growing rapidly. China's per capita oil intensity is growing fast, like India's, but at around 2.6 barrels per capita each year is around one-quarter the EU27 average, and only a little more than one-tenth the US per capita oil dependence, of around 23 barrels in 2008.

Overall, the OECD group consumed about 13.9 barrels of oil per capita in 2008-2009, down from about 14.4 barrels per capita in 2007-2008.

Disparities in natural gas consumption on a per capita basis are even more extreme, with some OECD countries taking 25 times more gas per capita than either China or India, despite gas demand growing very fast in these two countries. Only with coal consumption do we find lower differentials or disparities - helping explain why China's total CO2 emissions are now narrowly above US emissions, for a country with four times the USA's population.

World trade is already a favored target for setting a new type of "climate change protectionism", or enforcement and incentivizing process for 'cleaning up and decarbonizing' the global economy. Tariff measures, likely to be applied by the EU27, would feature transborder carbon taxes penalizing high-emitter industrial goods exporters, led by China but also including India, Russia, Brazil, Indonesia, Pakistan, Turkey and other large industrializing (or re-industrializing in Russia's case) emerging economies.

Never mentioned and probably unknown to many WTO officials and OECD trade and industry ministers, the oil and fossil energy balance of world trade is heavily in favor of the OECD group.

Through outplacement and delocalisation, OECD oil and fossil energy demand is exported along with the associated jobs, then imported with the energy-intense industrial consumer goods, and transport needed to ensure 'least cost just-in-time' stock and supply management in the consumer heartlands.

Probable net energy imports by the OECD group, embodied in trade goods and transport, run at over 1.25 barrels oil equivalent per capita each year. In some cases, such as the USA and UK, they could exceed 2 barrels oil equivalent, per person, per year.

Emissions from producing and transporting these goods can only be attributed to the OECD and counted as CO2 and related GHG emissions due to OECD consumers, policy makers and economic deciders.

This trade-related energy and climate change issue has yet to emerge, and could be explosive. OECD dependence on industrial goods imports, and on raw materials and semifinished products is high, and rising. All carry high levels of energy intensity per unit value or weight, relative to tertiary goods and service exports from the OECD.

When or if international trade is fully counted in climate change negotiations, the present Chinese and India semi-rejectionist uncooperative stance, will be yet further supported by simple facts and figures. One direct proposal they could make is the reduction of their emissions totals, by proportion to the amounts of embodied energy they export. OECD countries would also include transport-related emissions on their net imports by volume, weight and type, not value, as OECD-origin emissions.

Will Cop 15 Be A Cop Out?

The very recent New Delhi accord signed by China and India basically sets out the 'Chindia' stance for COP-15. The agreement features alternate and renewable energy development by the two countries, but rejects the framework of fixed CO2 emissions cuts and caps proposed by OECD leaderships.

To many observers, this New Delhi accord is a pre-emptive move by the Chinese and Indian leaderships to avoid blame when COP-15 breaks down without agreement.

Other non-OECD countries are not far behind in seeing things through Chinese and Indian eyeglasses. These include both Russia and most African countries, including intensely coal-dependent South Africa, as well as the low income, agriculture and non-oil raw materials producer countries of the continent. Their common stance is simple: if the OECD group wants an extreme rapid shift away from oil, it should pay for it.

Bilateral solutions and programs are now emerging, even at the level of the USA and China, but also between China, India and non-OECD countries. Energy saving, and development of alternate and renewable energy feature, with financing mechanisms including a wide range of options.

This factor - financing global energy transition - is rather surely the most basic source of dispute and largest constraint for achieving anything like the proclaimed targets, set by OECD leaderships since late 2008.

To ensure project feasibility on narrow investor return bases, energy prices have to be high, and stay high. If they are high and stay high, food prices can only rise, and global economic growth can only falter, probably with a return of recession, but this time with inflation. In turn, global energy demand will again stagnate or fall, removing the urgency to transit away from oil due to peak oil.

These easily-forecast background macroeconomic impacts appear to be unknown to OECD leaderships. They stoically repeat their sincere belief that CO2 must be chased out of the economy and society, on an accelerating timetable, in all countries.

The outlook for global and binding agreements at COP-15 is therefore somber, mainly due to this fantasist streak in climate change rhetoric, itself confronted by uncomfortable facts regarding the real nature of climate change, and incertitude that global warming is real and continuing.

To be sure, energy transition away from the fossil fuels is needed under any hypothesis, if only due to geological depletion of reserves. Costing this, marshalling and structuring the needed finance and technology support systems, and creating a long-term dynamic are the real challenges - carefully avoided by COP-15.

Andrew McKillop is a writer and consultant on oil and energy economics. Since 1975 he has worked in energy, economic and scientific organizations in Europe, Asia, the Middle East, and North America. These include the Canada Science Council, the ILO, European Commission, Organization of Arab Petroleum Exporting Countries, the UN Economic and Social Commission for Asia and South Pacific, and the World Bank. He is a founding member of the Asian chapter of the International Association of Energy Economics. He is also the editor, with Sheila Newman, of The Final Energy Crisis (Pluto Press, 2005).

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By Ben Gee (anonymous) | Posted October 26, 2009 at 23:56:51

In the end, people are selfish. Some are less selfish than others but no one will hurt himself to help others. If the two greatest poluters can not agree to a formula that will limit CO2, we will have to live with the results.

Andrew MacKillop is an amazing reporter. This piece outlines the information given out by the G20 conference and the OECD press agencies and probes them for accuracy on every point to bring us the real story of what is going on.

What a refreshing difference that is from a great deal of modern reportage from journalists who abdicate their public responsibilities of disclosure when fed lines of political blather from representatives in public office, without doing their homework to either laud or debunk the statements made.

Would the trend away from in-depth reporting be indicative of the interviewees' control over the reporters' output? For example, if the reporter became known as somebody who probes deeply into whatever they are given without accepting it at face value, might they be shunned by their news sources; hence frightening them into reportage of whatever they are given as factual?

Just a thought.

Andrew MacKillop, have you ever considered taking a post at a school for journalism?